Curated by Daniel Xu
California has announced a pilot program that would replace the state gas tax with what amounts to a vehicle miles traveled tax—a promising initiative that can be improved with minor tweaks. It’s a good idea, but it needs a new name and some minor policy revisions.
The initiative aims to address declining gas tax revenue, which makes policy sense, as part of what a gas tax is intended to offset is the cost of road maintenance. Every mile driven by a motorist causes some wear to the transportation infrastructure, and taxing fossil fuels by the gallon is a great proxy for a vehicle miles traveled tax.
But with the widening disparity in fuel efficiency and rising popularity of electric vehicles, a decreasing portion of the driving public is left to pay an increasing share of infrastructure maintenance costs.
Applying a tax to vehicle miles traveled eliminates the need for a proxy and charges drivers directly—akin to a user fee.
However, gas taxes aren’t solely intended to offset infrastructure-related costs. They’re also designed to account for broader fossil fuel costs otherwise imposed on society writ large, such as carbon emissions and pollution. A uniform per-mile charge that’s agnostic to vehicle type either undercharges diesel-burning clunkers or overcharges modern EVs for their share of climate-related costs.
The pilot program could also be a tough sell to consumers—replacing a gas tax with a road charge may lead them to think of the new tax as yet another toll. Also, consumers may chafe at the idea of paying an amount that properly offsets the costs associated with fueling and driving a vehicle, which may be more than $2 per gallon.
The “road charge” should really be a “transportation charge.” And it should transparently break down how the funds raised will be allotted to road maintenance, public transit, climate change initiatives, and state remediation programs.
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State Insights
NC Budget & Tax Center’s Alexandra Forter Sirota examines North Carolina’s tax cut policies, saying that corporate and personal tax reforms are needed to create a fairer economy.
BakerHostetler’s Mike Semes reviews California’s proposal to limit net operating loss deductions, saying it could deter startups from doing business in the state.
Federal Insights
BDO’s Rosy Lor examines the need for foreign trust reporting regulations, noting that previous IRS changes created traps for unwary taxpayers.
McGlinchey’s Heidi Urness and Aaron Kouhoupt review federal and state cannabis laws, saying that banks servicing marijuana businesses must build risk tolerance.
Maslon’s Walt Cosby explains risks of Covid-era tax credits, noting that due diligence protects buyers and sellers from employee retention credit surprises.
AltaClaro’s Patricia Libby explains how law firm associates and students can feel practice-ready with strong critical thinking skills.
Global Insights
Colin Biggers & Paisley’s Amy Liu says tax provisions in Australia’s budget proposal likely would increase compliance costs and litigation risk for foreign investors and multinationals.
Clayton Utz’s Angela Wood and Andy Bubb outline the measures impacting MNEs in Australia’s budget and anticipate the tax authority will continue its scrutiny of transfer pricing.
Pillar Two: What’s Ahead for Multinationals
Countries are moving ahead with implementation of a 15% minimum tax under the global tax deal’s Pillar Two. Multinational companies are prepping to navigate new laws, guidance, and rules for collecting data and preparing for potential disputes.
In this special report on Pillar Two, reporters Lauren Vella and Danish Mehboob take a closer look at the challenges ahead and what corporate tax executives need to know to be ready.
Also, hear from tax professionals at Skadden, KPMG, Plante Moran, Tax Foundation, and Baker McKenzie and check out a Bloomberg Tax decision tree on what companies need to know to file a GloBE Information Return. Download the report here.
Columnist Corner
Enabling the IRS to deny biofuel tax credit claims that don’t meet registration requirements at the time of filing would make the credit system less susceptible to fraud, Andrew Leahey writes in his Technically Speaking column.
Further, a track-and-trace process for biofuel production and sales would make fraud “administratively burdensome, ideally to the point of it no longer being financially viable,” Andrew adds.
Career Moves
Isaac Maron has rejoined Mayer Brown as a partner in the firm’s tax practice and as a member of the global projects and infrastructure team in Washington.
Sophie Allen has joined Greenberg Traurig as a shareholder with the firm’s tax practice in London.
Marco Amitrano has been named senior partner at PwC UK, effective July 1.
Cara Harrison has joined Baker McKenzie as a principal tax adviser in Chicago.
If you’re changing jobs or being promoted, email your submission to TaxMoves@bloombergindustry.com for consideration.
News Roundup
It’s been another busy week in tax news from state capitals to Washington. Here are some stories you might have missed from our Bloomberg Tax news team.
- Unfavorable treatment of the highly lucrative US R&D credit under the global minimum tax is threatening to expose American companies to higher taxes and prompting some to rethink new investments in the US.
- Owners of S corporations now have an easier time transferring more shares tax-free after a momentous US Tax Court decision last year flipped a longtime IRS position.
- The hard part is set to begin for the United Nations as it tries to overcome a gaping divide between developed and developing economies on what its new global treaty on tax cooperation should tackle.
- The IRS is making its Direct File free electronic filing tool a permanent choice for future tax seasons, the agency said.
Tax Journals
Tax Management International Journal
Despite the OECD’s approach aiming to simplify the application of the arm’s-length principle for routine distribution activities, “simplification” may not have been achieved, Abhishek Padwalkar of the WU Transfer Pricing Center says.
Trustees of Israeli trusts have new reporting requirements due to recent changes to the country’s tax laws, YETAX’s Amit Gottlieb and Dvir Saadia say.
Tax Management Memorandum
Recently finalized IRS regulations change how real estate investment trusts are considered domestically controlled and may turn foreign investors away from the US real estate market, Fried Frank’s Libin Zhang, Christopher Roman, and Cameron Cosby say.
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